This is a major question people ask, they want to know the difference between a business plan and a business model.
Key to note is that your business plan is incomplete if it doesn’t have a business model section more so if you are a for-profit venture.
Business Plan VS Business Model: Key difference
So let’s dive in, business plan vs business model, what’s the difference. Let’s start by defining both.
There are many definitions of a business plan but put simply a business plan is a document that states your business objectives, where you intend to be and how you would get there. It has different sections such as:
- Executive Summary
- Problem Statement
- Solution Statement
- Market Size/Industry Analysis
- Competition Analysis
- Business Model
- Marketing Plan
- Management Team
- Financial Projections
The sections of a business plan vary, some business plans have Operation Strategy, and some have Web Plan Summary etc. The nature of the business would determine the key sections to add and what to leave out.
So what then is a business model?
A business model is the operation of your business that has to do with revenue generation, simply put “how you make money.” This is one of the reasons investors pay keen attention to your business model even in a pitch deck!
Your model should show clearly the kind of business model you are operating. For example: Will you operate the commission based model like Uber? Other questions your business model should answer include:
- How much does your service or product cost?
- What’s your profit margin?
- How are you reselling or manufacturing the products?
If you remember I told you that a business model is usually part of a business plan. This doesn’t mean that you can’t have a document or one page dedicated to a business model.
Like you might have noticed, sometimes people use the word “revenue model” in place of “business model.”
Well, they are not exactly the same; a revenue model mainly states how you generate revenue without really making emphasis in other areas like profit margin etc.
A business model has several types, like the commission based model mentioned above, others are:
One of the key advantages of the subscription model is that it opens the door for recurring revenue. Usually, under this model, customers are billed daily, weekly, monthly or even yearly! Most software as a service model, come under the subscription model.
The freemium model is simply giving out your service for free with the intent of generating revenue through some other means. Take for example Google or Facebook, they primarily don’t charge users for using their service, but then they make money from advertisements placed on their platforms.
The franchise model is a quick way for a brand to scale and open several offices without having to spend to actualize this. Under the franchise model, the franchisee pays the franchisor a defined amount for using their brand.
The affiliate model is when a company or individual gives their product or services to affiliates to promote under certain conditions such as the affiliates get a commission for every sale that comes through their unique affiliate link.
Direct Sales Model
This is a model where the manufacturer of a product sells the product directly without using distributors. This happens for not so large manufactures, you probably have seen a bakery that has a showroom, right where they produce. So in the same spot where they produce they have an outlet where they sell.
In fact, there is one I know where you would literally see them baking right from where you are trying to make a purchase.
Well, I hope through this article, I have been able to help you understand business plan vs business model; the key difference! Just to recap, a business model and a business plan are not the same!
A business model does not have a business plan but a business plan has a business model. A business plan is incomplete if it doesn’t have a business model; stating how the business makes money.
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